Usually, around the last week of January, I receive panicked emails about missing W-9 forms, missing social security numbers, or vendors who simply refuse to fill out W-9s.
If this is you, do not worry. In this article, I have provided the answers you need and the steps you should take in this situation.
What happens if a vendor or subcontractor refuses to fill out a W-9 form?
There are a few reasons why a vendor or subcontractor might refuse to fill out a Form W-9. You do not need to worry about that person’s reasoning, but you do need to know what to do in this circumstance. Follow these steps:
- Make sure you have requested a Form W-9 from the vendor. Any attempts to request a Form W-9 should be documented in writing. The easiest way to do this is via email. The IRS calls this “solicitations” and requires that you request a Form W-9 using “three solicitations”:
- The first request should take place initially upon starting a business relationship.
- The second request, which is called a “first annual solicitation” should happen by December 31 of the same year in which you started working together (or by January 31 if you just started working together in December of the preceding year).
- The third request, which is called the “second annual solicitation” should happen by December 31 of the next year.
- You must begin backup withholding of 24% immediately. The money that you withhold should be reported on Form 945.
- If you have paid the vendor or subcontractor at least $600 over the course of the year, then you still need to file a Form 1099-MISC for this payee. This ensures that your expenses do not get messed up because of the vendor’s refusal to fill out a form.
- Since you do not have all of the needed information to completely fill out a digital Form 1099-MISC for this vendor, you will need to complete a paper form. This is due to the fact that the IRS won’t let you leave blank spaces on a digital form.
- When preparing the paper Form 1099-MISC, make sure you write the word “refused” in the Tax Identification Number (TIN) box where you would normally put their social security number or employee identification number.
- Once the Form 1099-MISC is complete, send the vendor and the IRS their copies just like you would for anyone else.
What happens if I do not have a W-9 Form for someone I paid (because I forgot to ask for one)?
Sometimes you’ll get to tax time and realize that you need a Form W-9 for someone but forgot to ask for it. Again, don’t panic. Just ask for it to be filled out now. Most vendors and subcontractors are happy to provide this information to you no matter when you ask. The important thing is that you collect the information and correctly complete your Form 1099-MISC for the vendor.
Is there a penalty for not providing a W-9 form?
As a business owner, you are responsible for requesting a Form W-9 from all of your contractors and vendors. You should do this immediately upon starting a business relationship. In other words, you should collect a complete Form W-9 before the work begins and before the vendor is paid.
Of course, in real life, we know that everything doesn’t happen in perfect order all of the time. The important piece here is that you obtain the Form W-9 as soon as you can and that you file the Form 1099-MISC correctly and on time. If your small business does not file a 1099 for everyone that should receive one, you may have to pay a penalty ranging from $50 to $270 per unfiled 1099.
As a vendor, contractor, or other payee of a business, you must fill out a Form W-9 when it is requested to avoid any penalties from the IRS.
What am I supposed to do with the Form W-9s I have collected?
Just keep them safe. You do not need to turn in Form W-9s to the IRS. Also, the information on the form should be used to fill out Form 1099s. It should not be used for any other purpose, and you cannot give anyone else the information contained on that form. If you do not keep the information safe, you can find yourself in hot water both criminally and civilly.
How do I issue a Form 1099-MISC without an EIN or SSN?
If a subcontractor you paid won’t give a social security number, you will need to complete the Form 1099-MISC on paper rather than digitally. In the TIN box, just write the word “refused.” Then, send the vendor and the IRS their copies of the form.
What if I want to continue working with this vendor even though this person has refused to fill out a Form W-9 or provide a TIN?
If you have requested a Form W-9 from a vendor or subcontractor, and that person has failed to provide it, the IRS requires that you immediately begin backup withholdings of 24% and that you report those withholdings on Form 945. You should continue backup withholdings until you are provided with a TIN. Make sure you have documented that you requested the Form W-9 from this vendor at least three times.
If you have further questions about backup withholdings or your tax responsibilities, or if you need help filling out Form 1099s, it’s a smart idea to consult a CPA. The bottom line is that if you have followed the steps needed to request information from your vendors and subcontractors, and if you have reported their earnings correctly and on time, then you will not be held responsible for any of their decisions when it comes to your taxes.